Ford Motor Company

 

Important Notice Regarding the Availability of Proxy

Materials for the Shareholder Meeting

to Be Held on May 13, 2010

 

Notice of 2010

Annual Meeting of Shareholders

and Proxy Statement

 

 

Ford Motor Company

One American Road

Dearborn, Michigan 48126-2798

 

April 1, 2010

 

 

Dear Shareholders:

 

Our 2010 annual meeting of shareholders will be held at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware, on Thursday, May 13, 2010. The annual meeting will begin promptly at 8:30 a.m., Eastern Time. If you plan to attend the meeting, please see the instructions on page 4.

 

Please read these materials so that you’ll know what we plan to do at the meeting. Also, please either sign and return the accompanying proxy card in the postage-paid envelope or instruct us by telephone or via the Internet as to how you would like your shares voted. This way, your shares will be voted as you direct even if you can’t attend the meeting. Instructions on how to vote your shares by telephone or via the Internet are on the proxy card enclosed with this proxy statement.

 

 

William Clay Ford, Jr.

Chairman of the Board

 

Whether or not you plan to attend the meeting, please provide your proxy by calling the toll-free telephone number, using the Internet, or filling in, signing, dating, and promptly mailing the accompanying proxy card in the enclosed envelope.

 

Table of Contents

 

 

 

 

 

Peter J. Sherry, Jr.

Secretary

 

April 1, 2010

 

 

“Annual Incentive Compensation Plan” or “Incentive Bonus Plan” means Ford’s Annual Incentive Compensation Plan.

 

“Class B Stock” means Ford’s Class B Stock.

 

“Deferred Compensation Plan” means Ford’s Deferred Compensation Plan.

 

“Dividend Equivalent” means cash or shares of common stock (or common stock units) equal in value to dividends, if any, paid on shares of common stock.

 

“Final Award” means shares of common stock, Restricted Stock Units, and/or cash awarded by the Compensation Committee under a Performance Unit.

 

“Ford” or “we” or “Company” means Ford Motor Company.

 

“Long-Term Incentive Plan” means Ford’s 1998 or 2008 Long-Term Incentive Plan.

 

“Named Executives” means the executives named in the Summary Compensation Table on p. 53.

 

“NYSE” means the New York Stock Exchange, Inc.

 

“Performance Unit” means, under the Long-Term Incentive Plan, an award of the right to earn up to a certain number of shares of common stock, Restricted Stock Units, or cash, or a combination of cash and shares of common stock or Restricted Stock Units, based on performance against specified goals established by the Compensation Committee.

 

“Restricted Stock Equivalent” or “Restricted Stock Unit” means, under the Long-Term Incentive Plan, the right to receive a share of common stock, or cash equivalent to the value of a share of common stock, when the restriction period ends, as determined by the Compensation Committee.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Senior Convertible Notes” means the Ford Motor Company 4.25% Senior Convertible Notes due 2036 and the Ford Motor Company 4.25% Senior Convertible Notes due 2016.

 

“Trust Preferred Securities” means the Ford Motor Company Capital Trust II 6.50% Cumulative Convertible Trust Preferred Securities.

 

“1998 Plan” means Ford’s 1998 Long-Term Incentive Plan.

 

“2008 Plan” means Ford’s 2008 Long-Term Incentive Plan.

Ford Motor Company

 

 

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The Board of Directors is soliciting proxies to be used at the annual meeting of shareholders to be held on Thursday, May 13, 2010, beginning at 8:30 a.m., Eastern Time, at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware. This proxy statement and the enclosed form of proxy are being made available to shareholders beginning April 1, 2010.

 

A proxy is another person that you legally designate to vote your stock. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.

 

It is a document that SEC regulations require that we make available to you when we ask you to vote your stock at the annual meeting.

 

At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting, including the election of directors, ratification of the selection of the Company’s independent registered public accounting firm, approval of the Tax Benefit Preservation Plan, and consideration of [five] shareholder proposals, if presented at the meeting. Also, management will report on the state of the Company and respond to questions from shareholders.

 

The record date for the annual meeting is March 17, 2010. The record date is established by the Board of Directors as required by Delaware law. Holders of common stock and holders of Class B Stock at the close of business on the record date are entitled to receive notice of the meeting and to vote at the meeting and any adjournments or postponements of the meeting.

 

Holders of common stock and holders of Class B Stock at the close of business on the record date may vote at the meeting. Holders of Trust Preferred Securities and Senior Convertible Notes cannot vote at this meeting.

 

On March 17, 2010, 3,339,877,422 shares of common stock and 70,852,076 shares of Class B Stock were outstanding and, thus, are eligible to be voted.

 

Holders of common stock and holders of Class B Stock will vote together without regard to class on the matters to be voted upon at the meeting. Holders of common stock have 60% of the general voting power. Holders of Class B Stock have the remaining 40% of the general voting power.

 

Each outstanding share of common stock will be entitled to one vote on each matter to be voted upon.

 

The number of votes for each share of Class B Stock is calculated each year in accordance with the Company’s Restated Certificate of Incorporation. At this year’s meeting, each outstanding share of Class B Stock will be entitled to 31.426 votes on each matter to be voted upon.

 

If your shares are registered directly in your name with Computershare Trust Company, N.A., the Company’s stock transfer agent, you are considered the shareholder of record with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in “street name.”

 

If you are a shareholder of record, you can give a proxy to be voted at the meeting:

 

 

The telephone and Internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. If you are a shareholder of record and you would like to vote by telephone or by using the Internet, please refer to the specific instructions set forth on the enclosed proxy card. If you wish to vote using a paper format and you return your signed proxy to us before the annual meeting, we will vote your shares as you direct.

 

If you are a Company employee or retiree participating in either of the Company’s Savings and Stock Investment Plan for Salaried Employees or Tax-Efficient Savings Plan for Hourly Employees, then you may be receiving this material because of shares held for you in those plans. In that case, you may use a proxy card to instruct the plan trustee how to vote those shares. The trustee will vote the shares in accordance with your instructions and the terms of the plan. If you hold shares in any of these plans, the trustee may vote the shares held for you even if you do not direct the trustee how to vote. In these cases, the trustee will vote any shares for which the trustee does not receive instructions in the same proportion as the trustee votes the shares for which the trustee does receive instructions.

 

If you hold your shares in “street name,” you must vote your shares in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed, or explained how you can access, a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

 

The votes of all shareholders will be held in confidence from directors, officers and employees of the Company except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company; (b) in case of a contested proxy solicitation; (c) if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or (d) to allow the independent inspectors of

election to certify the results of the vote. We will also continue, as we have for many years, to retain an independent tabulator to receive and tabulate the proxies and independent inspectors of election to certify the results.

 

Yes. If you are a shareholder of record, you may vote your shares at the meeting by completing a ballot at the meeting.

 

However, if you are a “street name” holder, you may vote your shares in person only if you obtain a signed proxy from your broker or nominee giving you the right to vote the shares.

 

Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting.

 

In the election of directors, you may vote for all nominees, or you may vote against one or more nominees. The proposal related to the election of directors is described in this proxy statement beginning at p. 5.

 

For each of the other proposals, you may vote for the proposal, against the proposal, or abstain from voting on the proposal. These proposals are described in this proxy statement beginning at p. 73.

 

Proposals 1, 2, and 3 will be presented at the meeting by management, and the rest are expected to be presented by shareholders.

 

The Board of Directors recommends a vote FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2010 (Proposal 2), FOR approval of the Tax Benefit Preservation Plan (Proposal 3), and AGAINST the shareholder proposals (Proposals 4 through 8).

 

If you do not specify on your proxy card (or when giving your proxy by telephone or over the Internet) how you want to vote your shares, we will vote them FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2010 (Proposal 2), FOR approval of the Tax Benefit Preservation Plan (Proposal 3), and AGAINST the shareholder proposals (Proposals 4 through 8).

 

Yes. You can revoke your proxy at any time before it is exercised in any of three ways:

 

 

A majority of the votes that could be cast by shareholders who are either present in person or represented by proxy at the meeting is required to elect the nominees for director and to approve each proposal. The votes are computed for each share as described on p. 2.

The total number of votes that could be cast at the meeting is the number of votes actually cast plus the number of abstentions. Abstentions are counted as “shares present” at the meeting for purposes of determining whether a quorum exists and have the effect of a vote “against” any matter as to which they are specified.

 

Proxies submitted by brokers that do not indicate a vote for some or all of the proposals because they don’t have discretionary voting authority and haven’t received instructions as to how to vote on those proposals (so-called “broker non-votes”) are not considered “shares present” and will not affect the outcome of the vote.

 

If you are a shareholder of record and you plan to attend the annual meeting, please let us know by indicating in the appropriate place when you return your proxy. Please tear off the top portion of your proxy card where indicated and bring it with you to the meeting. This portion of the card will serve as your ticket and will admit you and one guest.

 

If you are a “street name” shareholder, tell your broker or nominee that you’re planning to attend the meeting and would like a “legal proxy.” Then simply bring that form to the meeting and we’ll give you a ticket at the door that will admit you and one guest. If you can’t get a legal proxy in time, we can still give you a ticket at the door if you bring a copy of your brokerage account statement showing that you owned Ford stock as of the record date, March 17, 2010.

 

Each shareholder and guest will be asked to present valid government-issued picture identification, such as a driver’s license or passport, before being admitted to the meeting. Cameras (including cell phones with built-in cameras), recording devices, and other electronic devices will not be permitted at the meeting and attendees will be subject to security inspections. We encourage you to leave any such items at home. We will not be responsible for any items checked at the door.

 

We do not know of any other matters to be presented or acted upon at the meeting. Under our By-Laws, no business besides that stated in the meeting notice may be transacted at any meeting of shareholders. If any other matter is presented at the meeting on which a vote may properly be taken, the shares represented by proxies will be voted in accordance with the judgment of the person or persons voting those shares.

 

Thirteen directors will be elected at this year’s annual meeting. Each director will serve until the next annual meeting or until he or she is succeeded by another qualified director who has been elected.

 

William Clay Ford, who had been a member of the Board of Directors since 1948, retired from the Board effective May 12, 2005. As with previous years, the Board of Directors has again requested that Mr. Ford serve as Director Emeritus so that the Board can continue to avail itself of his wisdom, judgment and experience, and Mr. Ford has agreed to so serve. Mr. Ford is entitled to attend Board and committee meetings and participate in discussion of matters that come before the Board or its committees, although he is not entitled to vote upon any such matters and no longer receives compensation as a non-employee Board member.

 

We will vote your shares as you specify when providing your proxy. If you do not specify how you want your shares voted when you provide your proxy, we will vote them for the election of all of the nominees listed below. If unforeseen circumstances (such as death or disability) make it necessary for the Board of Directors to substitute another person for any of the nominees, we will vote your shares for that other person.

 

Qualifications Considered for Nominees

 

Because Ford is a large and complex company, the Committee considers numerous qualifications when considering candidates for the Board. Among the most important qualities directors should possess are the highest personal and professional ethical standards, integrity, and values. They should be committed to representing the long-term interests of all of the shareholders. Directors must also have practical wisdom and mature judgment. Directors must be objective and inquisitive. Ford recognizes the value of diversity and we endeavor to have a diverse Board, with experience in business, government, education and technology, and in areas that are relevant to the Company’s global activities. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. Directors should also be prepared to offer their resignation in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities as directors of the Company, including a change in their principal job responsibilities.

 

Each of the nominees for director is now a member of the Board of Directors, which met fifteen times during 2009. Each of the nominees for director attended at least 75% of the combined Board of Director and committee meetings held during the periods served by such nominee in 2009. The nominees provided the following information about

themselves as of February 1, 2010. Additionally, for each director-nominee we have disclosed the particular experience, qualifications, attributes, or skills that led the Board to conclude that the nominee should serve as a director.

 

Nominees

 

 

The Audit Committee is composed of four directors, all of whom meet the independence standards contained in the NYSE Listed Company rules, SEC rules and Ford’s Corporate Governance Principles, and operates under a written charter adopted by the Board of Directors. A copy of the Audit Committee Charter may be found on the Company’s website, www.ford.com. The Audit Committee selects, subject to shareholder ratification, the Company’s independent registered public accounting firm.

 

Ford management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm, PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), is responsible for performing independent audits of the Company’s consolidated financial statements and internal control over financial reporting and issuing an opinion on the conformity of those audited financial statements with United States generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee monitors the Company’s financial reporting process and reports to the Board of Directors on its findings.

 

Audit Fees

 

PricewaterhouseCoopers served as the Company’s independent registered public accounting firm in 2009 and 2008. The Company paid PricewaterhouseCoopers $42.7 million and $43.7 million for audit services for the years ended December 31, 2009 and 2008, respectively. Audit services consisted of the audit of the financial statements included in the Company’s Annual Report on Form 10-K, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, attestation of the effectiveness of the Company’s internal controls over financial reporting, preparation of statutory audit reports, and providing comfort letters in connection with Ford and Ford Motor Credit Company funding transactions.

 

Audit-Related Fees

 

The Company paid PricewaterhouseCoopers $4.4 million and $7.7 million for audit-related services for the years ended December 31, 2009 and 2008, respectively. Audit-related services included support of funding transactions, due diligence for mergers, acquisitions and divestitures, employee benefit plan audits, attestation services, internal control reviews, and assistance with interpretation of accounting standards.

 

Tax Fees

 

The Company paid PricewaterhouseCoopers $4.1 million and $5.7 million for tax services for the years ended December 31, 2009 and 2008, respectively. The types of tax services provided included assistance with tax compliance and the preparation of tax returns, tax consultation, planning and implementation services, assistance in connection with tax audits, tax advice related to mergers, acquisitions and divestitures, and tax return preparation services provided to international service employees (“ISEs”) to minimize the cost to the Company of these assignments. In 2005, the Company began the transition to a new service provider for tax return preparation services to ISEs. Of the fees paid for tax services, the Company paid 59% and 57% for tax compliance and the preparation of Company tax returns in 2009 and 2008, respectively.

 

All Other Fees

 

The Company did not engage PricewaterhouseCoopers for any other services for the years ended December 31, 2009 and 2008.

Total Fees

 

The Company paid PricewaterhouseCoopers a total of $51.2 and $57.1 million in fees for the years ended December 31, 2009 and 2008, respectively.

 

Auditor Independence

 

During the last year, the Audit Committee met and held discussions with management and PricewaterhouseCoopers. The Audit Committee reviewed and discussed with Ford management and PricewaterhouseCoopers the audited financial statements and the assessment of the effectiveness of internal controls over financial reporting, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Audit Committee also discussed with PricewaterhouseCoopers the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, as well as by SEC regulations.

 

PricewaterhouseCoopers submitted to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the audit committee concerning independence. The Audit Committee discussed with PricewaterhouseCoopers such firm’s independence.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC.

 

The Audit Committee also considered whether the provision of other non-audit services by PricewaterhouseCoopers to the Company is compatible with maintaining the independence of PricewaterhouseCoopers and concluded that the independence of PricewaterhouseCoopers is not compromised by the provision of such services.

 

Annually, the Audit Committee pre-approves categories of services to be performed (rather than individual engagements) by PricewaterhouseCoopers. As part of this approval, an amount is established for each category of services (Audit, Audit-Related, and Tax Services). In the event the pre-approved amounts prove to be insufficient, a request for incremental funding will be submitted to the Audit Committee for approval during the next regularly scheduled meeting. In addition, all new engagements greater than $250,000 will be presented in advance to the Audit Committee for approval. A regular report is prepared for each regular Audit Committee meeting outlining actual fees and expenses paid or committed against approved fees.

 

Audit Committee

 

Stephen G. Butler (Chair)

Kimberly A. Casiano

Irvine O. Hockaday, Jr.

Gerald L. Shaheen

 

Ford has operated under sound corporate governance practices for many years. We believe it is important to disclose to you a summary of our major corporate governance practices. Some of these practices have been in place for many years. Others have been adopted in response to regulatory and legislative changes. We will continue to assess and refine our corporate governance practices and share them with you.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee is composed of ten directors, all of whom are considered independent under the NYSE Listed Company rules and Ford’s Corporate Governance Principles. The Committee operates under a written charter adopted by the Board of Directors. A copy of the charter may be found on Ford’s website at www.ford.com.

 

Composition of Board of Directors/Nominees

 

The Nominating and Governance Committee recommends to the Board the nominees for all directorships to be filled by the Board or by you. The Committee also reviews and makes recommendations to the Board on matters such as the size and composition of the Board in order to ensure the Board has the requisite expertise and its membership consists of persons with sufficiently diverse and independent backgrounds. Between annual shareholder meetings, the Board may elect directors to vacant Board positions to serve until the next annual meeting.

 

The Board proposes to you a slate of nominees for election to the Board at the annual meeting. You may propose nominees (other than self-nominations) for consideration by the Committee by submitting the names, qualifications and other supporting information to: Secretary, Ford Motor Company, One American Road, Dearborn, MI 48126. Properly submitted recommendations must be received no later than December 2, 2010 to be considered by the Committee for inclusion in the following year’s nominations for election to the Board. Your properly submitted candidates are evaluated in the same manner as those candidates recommended by other sources. All candidates are considered in light of the needs of the Board with due consideration given to the qualifications described on p. 5 under Election of Directors.

 

Identification of Directors

 

The Charter of the Nominating and Governance Committee provides that the Committee conducts all necessary and appropriate inquiries into the backgrounds and qualifications of possible candidates as directors. It has the sole authority to retain and terminate any search firm to be used to assist it in identifying and evaluating candidates to serve as directors of the Company.

 

The Committee identifies candidates through a variety of means, including search firms, recommendations from members of the Committee and the Board, including the Executive Chairman and the President and CEO, and suggestions from Company management. The Company on behalf of the Committee has paid fees to third-party firms to assist the Committee in the identification and evaluation of potential Board members.

 

Director Independence

 

A majority of the directors must be independent directors under the NYSE Listed Company rules. The NYSE rules provide that no director can qualify as independent unless the Board affirmatively determines that the director has no material relationship with the listed company. The Board has adopted the following standards in determining whether or not a director has a material relationship with the Company and these standards are contained in Ford’s Corporate Governance Principles and may be found at the Company’s website, www.ford.com.

 

 

 

 

Based on these independence standards and all of the relevant facts and circumstances, the Board determined that none of the following directors had any material relationship with the Company and, thus, are independent: Stephen G. Butler, Kimberly A. Casiano, Anthony F. Earley, Jr., Richard A. Gephardt, Irvine O. Hockaday, Jr., Richard A. Manoogian, Ellen R. Marram, Homer A. Neal, Gerald L. Shaheen, and John L. Thornton.

 

Disclosure of Relevant Facts and Circumstances

 

With respect to the independent directors listed above, the Board considered the following relevant facts and circumstances in making the independence determinations:

 

From time to time during the past three years, Ford purchased goods and services from, or financing arrangements were provided by, various companies with which certain directors were or are affiliated either as members of such companies’ boards of directors or, in the case of Ms. Casiano and Mr. Earley, as officers. In addition to Ms. Casiano and Mr. Earley, these directors included Mr. Gephardt, Mr. Hockaday, Mr. Manoogian, Ms. Marram, and Mr. Shaheen. The Company also made donations to certain institutions with which certain directors are affiliated. These included Dr. Neal and Ms. Casiano. Additionally, companies with which Mr. Manoogian and Mr. Earley are affiliated purchased

products from Ford. None of the relationships described above were material under the independence standards contained in our Corporate Governance Principles.

 

In addition, Richard A. Manoogian is a member of the Board of Trustees of The Henry Ford, Mr. Earley is a member of the board of United Way for Southeastern Michigan, and both Messrs. Manoogian and Earley are members of the Board of Directors of Business Leaders for Michigan, formerly known as Detroit Renaissance. The Company and its affiliates contributed to The Henry Ford and the United Way for Southeastern Michigan amounts that exceeded the greater of $1 million or two percent of those entities’ total annual discretionary receipts during its three most recently completed fiscal years. It was further noted that in February 2008, Ford, with the approval of the Board, decided to invest up to $10 million over the next two to four years in the Business Leaders for Michigan’s Venture Capital Fund I. Other large companies in Southeastern Michigan have also made monetary commitments to the fund in order to support local venture capital firms in Southeast Michigan. Pursuant to the Company’s Corporate Governance Principles, the independent directors listed above (excluding Mr. Earley and Mr. Manoogian), considering all of the relevant facts and circumstances, determined that the Company’s contributions to The Henry Ford, the United Way for Southeastern Michigan, and Business Leaders for Michigan and the presence of Mr. Earley and Mr. Manoogian on those Boards did not constitute a material relationship between Ford and Messrs. Earley and Manoogian. Consequently, these independent directors determined Messrs. Earley and Manoogian to be independent. With respect to The Henry Ford, the directors gave due consideration to the composition of the Board of Trustees of The Henry Ford, which includes Edsel B. Ford II, William Clay Ford and William Clay Ford, Jr., and the Company’s history of support for The Henry Ford, which predated Mr. Manoogian’s service. Likewise, with respect to the United Way for Southeastern Michigan and Business Leaders for Michigan, the directors gave due consideration to the composition of the Board of Directors of Business Leaders for Michigan, which includes William Clay Ford, Jr., and Mr. James Vella, President of the Ford Fund, as well as those entities’ mission to promote the welfare and economic development of Michigan, and the Company’s history of contributions to those organizations and to the development of Michigan. In each case, the directors determined that the Company was not unduly influenced to make contributions to The Henry Ford, the United Way for Southeastern Michigan, or Business Leaders for Michigan because of Mr. Earley’s or Mr. Manoogian’s presence on those boards, nor was Mr. Earley or Mr. Manoogian unduly influenced by the contributions made by the Company to those organizations.

 

Corporate Governance Principles

 

The Nominating and Governance Committee developed and recommended to the Board a set of corporate governance principles, which the Board adopted. Ford’s Corporate Governance Principles may be found on its website at www.ford.com. These principles include: a limitation on the number of boards on which a director may serve, qualifications for directors (including a director retirement age and a requirement that directors be prepared to resign from the Board in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities), director orientation, continuing education and a requirement that the Board and each of its Committees perform an annual self-evaluation. Although Messrs. Hockaday and Manoogian have reached the normal retirement age of 72 years, the Board has waived the retirement age for them as permitted under our Corporate Governance Principles. Shareholders may obtain a printed copy of the Company’s Corporate Governance Principles by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.

 

Leadership Structure

 

The Board of Directors has chosen to separate the roles of CEO and Chairman of the Board of Directors. Alan Mulally is our President and CEO and William Clay Ford, Jr., is Chairman of the Board of Directors as well as our Executive Chairman. We believe this structure is optimal for Ford because it allows Mr. Mulally to focus on the day-to-day operation of the business, in particular the implementation of our ONE Ford Plan, while allowing Mr. Ford to focus on leadership of the Board of Directors in addition to providing the Company with direction on

Company-wide issues such as sustainability and stakeholder relationships. Furthermore, the Board has appointed Irvine O. Hockaday, Jr., as our Presiding Independent Director. We believe this to be an important governance practice given that the Chairman of the Board, Mr. Ford, is not an independent director under our Corporate Governance Principles. Mr. Hockaday chairs the executive sessions of our independent directors and works with Mr. Ford and Mr. Mulally to ensure management is adequately addressing the matters identified by the Board. This structure optimizes the roles of CEO, Chairman, and Presiding Independent Director and provides Ford with sound corporate governance practices in the management of its business.

 

Board’s Role in Risk Management

 

The Board of Directors of the Company has overall responsibility for the oversight of risk management at Ford. Day to day risk management is the responsibility of management, which has implemented Enterprise Risk Management processes to identify, manage and monitor risks that face the Company.

 

The oversight responsibility of the Board and its Committees is supported by Company management and the risk management processes that are currently in place. Ford has extensive and effective risk management processes, relating specifically to compliance, reporting, operating and strategic risks. Compliance risk encompasses matters such as legal and regulatory compliance (e.g., Foreign Corrupt Practices Act, environmental, OSHA/safety, etc.). Reporting risk covers Sarbanes-Oxley compliance, disclosure controls and procedures, and accounting compliance. Operating risk addresses the myriad of matters related to the operation of a complex company such as Ford (e.g., quality, supply chain, sales and service, financing and liquidity, product development and engineering, labor, etc.). Strategic risk encompasses somewhat broader and longer-term matters, including, but not limited to, technology development, sustainability, capital allocation, management development, retention and compensation, competitive developments and geopolitical developments.

 

We believe that key success factors in the risk management at Ford include strong Board and senior management commitment, effective top-down and bottom-up communication (including communication between management and the Board and Committees), and active cross-functional participation among the Business Groups and Functional Skill Teams. More specifically, our Chief Executive Officer, Alan Mulally, has institutionalized a Business Plan Review and Special Attention Review process where, on a weekly basis (and more often where circumstances dictate), the senior leadership of the Company from each of the Business Groups and the Functional Skill Teams, reviews the status of the business, the risks presented to the business, (once again in the areas of compliance, reporting, operating and strategic risks), and develops specific plans to address those risks.

 

As noted above, the full Board of Directors has overall responsibility for the oversight of risk management at Ford and the Board of Directors itself oversees operating risk management, with reviews at each of its regular Board meetings. The Board of Directors has delegated responsibility for the oversight of specific areas of risk management to certain Committees of the Board, with each Board Committee reporting to the full Board following each Committee meeting. The Audit Committee assists the Board of Directors in overseeing compliance and reporting risk. The Board, the Sustainability Committee, the Compensation Committee and the Finance Committee all play a role in overseeing strategic risk management.

 

Risk Assessment Regarding Compensation Policies and Practices

 

We recently conducted an assessment of our compensation policies and practices, including our executive compensation programs, to evaluate the potential risks associated with these policies and practices. We reviewed and discussed the findings of the assessment with the Compensation Committee and concluded that our compensation programs are designed with an appropriate balance of risk and reward in relation to our ONE Ford Plan and do not encourage excessive or unnecessary risk-taking behavior. As a result, we do not believe that risks relating to our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on the Company.

In conducting this review, we considered the following attributes of our programs:

 

 

Our Compensation Committee considered compensation risk implications during its deliberations on the design of our 2010 executive compensation programs with the goal of appropriately balancing short-term incentives and long-term performance.

 

Policy and Procedure for Review and Approval of Related Party Transactions

 

Business transactions between Ford and its officers or directors, including companies in which a director or officer (or an immediate family member) has a substantial ownership interest or a company where such director or officer (or an immediate family member) serves as an executive officer (“related party transactions”), are not prohibited. In fact, certain related party transactions can be beneficial to the Company and its shareholders.

 

It is important, however, to ensure that any related party transactions are beneficial to the Company. Accordingly, any related party transaction, regardless of amount, is submitted to the Nominating and Governance Committee in advance for review and approval. All existing related party transactions are reviewed at least annually by the Nominating and Governance Committee. The Office of the General Counsel reviews all such related party transactions, existing or proposed, prior to submission to the Nominating and Governance Committee, and our General Counsel opines on the appropriateness of each related party transaction. The Nominating and Governance Committee may, at its discretion, consult with outside legal counsel.

 

Any director or officer with an interest in a related party transaction is expected to recuse himself or herself from any consideration of the matter.

 

The Nominating and Governance Committee’s approval of a related party transaction may encompass a series of subsequent transactions contemplated by the original approval, i.e., transactions contemplated by an ongoing business relationship occurring over a period of time. Examples include transactions in the normal course between the Company and a dealership owned by a director or an executive officer (or an immediate family member thereof), transactions in the normal course between the Company and financial institutions with which a director or officer may be associated, and the ongoing issuances of purchase orders or releases against a blanket purchase order made in the normal course by the Company to a business with which a director or officer may be associated. In such

instances, any such approval shall require that the Company make all decisions with respect to such ongoing business relationship in accordance with existing policies and procedures applicable to non-related party transactions (e.g., Company purchasing policies governing awards of business to suppliers, etc.).

 

In all cases, a director or officer with an interest in a related party transaction may not attempt to influence Company personnel in making any decision with respect to the transaction.

 

Committee Charters/Codes of Ethics

 

The Company has published on its website (www.ford.com) the charter of each of the Audit, Compensation, Finance, Nominating and Governance, and Sustainability Committees of the Board, as well as its Code of Conduct Handbook, which applies to all officers and employees, a code of ethics for directors, and a code of ethics for the Company’s chief executive officer as well as senior financial and accounting personnel. Any waiver of, or amendments to, the codes of ethics for directors or executive officers, including the chief executive officer, the chief financial officer and the principal accounting officer, may be approved only by the Nominating and Governance Committee and any such waivers or amendments will be disclosed promptly by the Company by posting such waivers or amendments to its website. The Committee also reviews management’s monitoring of compliance with the Company’s Code of Conduct. Printed copies of each of the committee charters and the codes of ethics referred to above are also available by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.

 

Executive Sessions of Non-Employee Directors

 

Non-employee directors ordinarily meet in executive session without management present at regularly scheduled Board meetings and may meet at other times at the discretion of the presiding independent director or at the request of any non-employee director. Currently, Irvine O. Hockaday, Jr., is the presiding independent director for the executive sessions of non-management directors. Additionally, all of the independent directors meet periodically (but not less than annually) without management or non-independent directors present.

 

Audit Committee

 

The Charter of the Audit Committee provides that a member of the Audit Committee generally may not serve on the audit committee of more than two other public companies. The Board has designated Stephen G. Butler as an Audit Committee financial expert. Mr. Butler meets the independence standards for audit committee members under the NYSE Listed Company and SEC rules. The lead partner of the Company’s independent registered public accounting firm is rotated at least every five years.

 

Compensation Committee Operations

 

The Compensation Committee establishes and reviews our overall executive compensation philosophy and strategy and oversees our various executive compensation programs. The Committee is responsible for evaluating the performance of and determining the compensation for our Executive Chairman, the President and CEO, and other executive officers, and approving the compensation structure for senior management, including officers. The Committee is composed of four directors who are considered independent under the NYSE Listed Company rules and our Corporate Governance Principles. The Committee’s membership is determined by our Board of Directors. The Committee operates under a written charter adopted by our Board of Directors. The Committee annually reviews the charter. A copy of the charter may be found on our website at www.ford.com.

 

The Committee makes decisions regarding the compensation of our officers that are Vice Presidents and above, including the Named Executives. The Committee has delegated authority, within prescribed share limits, to a Long-Term Incentive Compensation Award Committee (comprised of William Clay Ford, Jr., Alan Mulally, and L. W. K.

Booth) to approve grants of options, Performance Units, Restricted Stock Units and other stock-based awards, and to the Annual Incentive Compensation Award Committee to determine bonuses, for other employees.

 

The Board of Directors makes decisions relating to non-employee director compensation. Any proposed changes are reviewed in advance and recommended to the Board by the Nominating and Governance Committee.

 

The Compensation Committee considers recommendations from Mr. Ford, Mr. Mulally, and the Group Vice President — Human Resources and Corporate Services, in developing compensation plans and evaluating performance of other executive officers. The Committee’s consultant also provides advice and analysis on the structure and level of executive compensation. Final decisions on any major element of compensation, however, as well as total compensation for executive officers, are made by the Compensation Committee.

 

In 2009, the Committee engaged Semler Brossy Consulting Group, LLC, an independent compensation consulting firm, to advise the Committee on executive compensation and benefits matters. Semler Brossy is retained directly by the Committee and it has the sole authority to review and approve of the budget of the independent consultant. Semler Brossy does not advise our management and receives no other compensation from us. The same Semler Brossy principal attended all nine of the Committee meetings in 2009. In addition, the Committee relied on survey data provided by the Towers Perrin Executive Compensation Database. See “How We Determine Compensation — C. Competitive Survey” in the “Compensation Discussion and Analysis” on pp. 35-37. Towers Perrin does not assist the Compensation Committee in determining or recommending compensation of executive officers. Towers Perrin is retained by Ford management, not the Committee.

 

The Committee met nine times during 2009. Committee meetings typically occur prior to the meetings of the full Board of Directors. Bonus target grants, bonus awards, stock option grants, Performance Unit grants, final stock awards, and Final Awards of Restricted Stock Units typically are decided at the February or March Committee meeting (see “Compensation Discussion and Analysis — Equity-Based Compensation — D. Timing of Awards” on p. 47). Officer salaries are reviewed in December each year. Beginning in 2010, the Committee will review officer salaries in March of each year, consistent with the review of other salaried employees. The Company decided that there would be no annual merit increases to salary for salaried employees for 2009.

 

See the “Compensation Discussion and Analysis” on pp. 32-51 for more detail on the factors considered by the Committee in making executive compensation decisions.

 

The Committee reviews our talent and executive development program with senior management. These reviews are conducted periodically and focus on executive development and succession planning throughout the organization, at the Vice President level and above.

 

Our policy, approved by the Compensation Committee, to limit outside board participation by our officers, is shown below:

 

 

Board Committees

 

Only independent directors serve on the Audit, Compensation and Nominating and Governance Committees, in accordance with the independence standards of the NYSE Listed Company rules and the Company’s Corporate Governance Principles. The Board, and each committee of the Board, has the authority to engage independent consultants and advisors at the Company’s expense.

Communications with the Board/Annual Meeting Attendance

 

The Board has established a process by which you may send communications to the Board. You may send communications to our Directors, including any concerns regarding Ford’s accounting, internal controls, auditing, or other matters, to the following address: Board of Directors, Ford Motor Company, P.O. Box 685, Dearborn, MI 48126-0685 U.S.A. You may submit your concern anonymously or confidentially. You may also indicate whether you are a shareholder, customer, supplier, or other interested party. Communications relating to the Company’s accounting, internal controls, or auditing matters will be relayed to the Audit Committee. A summary of the other communications will be relayed to the Nominating and Governance Committee. Communications will be referred to other areas of the Company for handling as appropriate under the facts and circumstances outlined in the communications. Ford will acknowledge receipt of all communications sent to the address above that disclose a return address. You may also find a description of the manner in which you can send communications to the Board on the Company’s website (www.ford.com).

 

All members of the Board are expected to attend the annual meeting, unless unusual circumstances would prevent such attendance. Last year, eleven of the thirteen nominated directors attended the annual meeting.

 

The following table shows how much Ford stock each director, nominee, and Named Executive beneficially owned as of February 1, 2010. No director, nominee or executive officer, including Named Executives, beneficially owned more than [0.24]% of Ford’s total outstanding common stock. Directors and executive officers as a group, including the Named Executives, beneficially owned [0.58]% of Ford common stock as of February 1, 2010. These persons held options exercisable on or within 60 days after February 1, 2010 to buy, and/or beneficially owned as of February 1, 2010 Trust Preferred Securities convertible into, [24,361,777] shares of Ford common stock.

 

 

Notes

 

⁽¹⁾For executive officers, included in the amounts for “All Directors and Executive Officers as a group” are Restricted Stock Equivalents and/or Restricted Stock Units issued under the 1998 Plan and the 2008 Plan as long-term incentive grants in 2009 and prior years for retention and other incentive purposes.

 

Also, amounts shown include restricted shares of common stock issued under the 2008 Plan as follows: [126,598] shares for Edsel B. Ford II as payment for his services pursuant to a consulting agreement with the Company (see pp. 28-29). In addition, amounts shown include Restricted Stock Equivalents and/or Restricted Stock Units issued under the 1998 Plan and the 2008 Plan as follows: 851,235 units for Mr. Mulally, 236,219 units for L. W. K. Booth, 305,492 units for Mr. Fields, and 447,839 units for Mr. Fleming.

 

⁽²⁾In addition to the stock ownership shown in the table above: Edsel B. Ford II has disclaimed beneficial ownership of [105,698] shares of common stock and [55,533] shares of Class B Stock that are either held directly by his immediate family, by charitable funds which he controls or by members of his immediate family in custodial or conservatorship accounts for the benefit of other members of his immediate family. William Clay Ford, Jr., has disclaimed beneficial ownership of [91,842] shares of common stock and [88,177] shares of Class B Stock that are either held directly by members of his immediate family or by members of his immediate family in custodial accounts for the benefit of other members of his immediate family. Present directors and executive officers as a group have disclaimed beneficial ownership of a total of [197,540] shares of common stock and [143,710] shares of Class B Stock.

 

Also, on February 1, 2010 (or within 60 days after that date), the Named Executives and directors listed below have rights to acquire shares of common stock through the exercise of stock options under Ford’s stock option plans and/or through conversion of Trust Preferred Securities, as follows:

 

Person		Number of Shares
L. W. K. Booth			1,706,683
Mark Fields			2,307,460
John Fleming			629,547
William Clay Ford, Jr.			9,290,778
Richard A. Manoogian			56,498
Alan Mulally			8,681,112

 

The amounts of common stock shown above for Mr. Manoogian are a result of his ownership of Trust Preferred Securities, which are convertible into Ford common stock. In Mr. Manoogian’s case, he is deemed to be the beneficial owner of certain Trust Preferred Securities as a result of his being a trustee of a charitable foundation that owns the Trust Preferred Securities. Additionally, Mr. Manoogian pledged as security 200,000 shares of common stock held in a trust of which he is a trustee. [Mr. Ford has pledged 2,199,501 shares of common stock.]

 

⁽³⁾Pursuant to SEC filings, the Company was notified that as of December 31, 2009, the following entities had more than a 5% ownership interest of Ford common stock, or owned securities convertible into more than 5% ownership of Ford common stock, or owned a combination of Ford common stock and securities convertible into Ford common stock that could result in more than 5% ownership of Ford common stock: Black Rock, Inc., 40 East 52^nd Street, New York, New York 10022, through certain of its affiliates, owned 168,514,166 shares of common stock (5.19%); UAW Retiree Medical Benefits Trust, 200 Walker Street, Detroit, Michigan 48207, is the sole shareholder of VEBA-F Holdings LLC, a Delaware Limited Liability Company which directly owns warrants to purchase 362,391,305 shares of common stock (10.1%) (in addition Independent Fiduciary Services, Inc., 805 15^th Street, NW, Suite 1120, Washington, D.C. 20005, is the investment adviser to UAW Retiree Medical Benefits Trust); and Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts 02109, owned 139,702,629 shares of common stock (5.33%).

 

⁽⁴⁾In general, these are common stock units credited under a deferred compensation plan and payable in cash.

⁽⁵⁾As of February 1, 2010, the following persons owned more than 5% of the outstanding Class B Stock: Lynn F. Alandt, c/o Ford Estates, Detroit, Michigan, beneficially owned [7,294,064] shares ([10.30]%), Benson Ford, Jr., c/o Ford Estates, Detroit, Michigan, beneficially owned [4,055,739] shares ([5.72]%), Eleanor F. Sullivan, c/o Ford Estates, Detroit, Michigan, beneficially owned [5,622,973] shares ([7.94]%), Josephine F. Ingle, c/o Ford Estates, Detroit, Michigan, beneficially owned [4,554,709] shares ([6.43]%), Alfred B. Ford, c/o Ford Estates, Detroit, Michigan, beneficially owned [3,566,801] shares ([5.03]%), William Clay Ford, c/o Ford Estates, Detroit, Michigan, beneficially owned [10,161,331] shares ([14.34]%) and Sheila F. Hamp, c/o Ford Estates, Detroit, Michigan, beneficially owned [3,703,330] ([5.23]%). In addition to the above, David M. Hempstead , c/o Ford Estates, Detroit, Michigan controlled [6,251,516] shares ([8.82]%) as trustee of various trusts. Mr. Hempstead disclaims beneficial ownership of these shares.

 

Of the outstanding Class B Stock, [52,016,831] shares are held in a voting trust of which Edsel B. Ford II, William Clay Ford, and William Clay Ford, Jr. are among the trustees. The trust requires the trustees to vote the shares as directed by a plurality of the shares in the trust.

 

Impact Resulting From Spin-off of Visteon Corporation and Implementation of the Value Enhancement Plan

 

The value of the Company’s common stock changed as a result of:

 

 

To account for these changes in value, the following items held by officers or directors of the Company as of June 28, 2000 and August 2, 2000, respectively, were adjusted in each case to ensure that the aggregate value of the item before and after each of these events would be approximately equal: common stock units, deferred contingent credits, Performance Stock Rights, Restricted Stock Equivalents, and stock options. (References in this proxy statement to any of these items that were issued before August 2, 2000 are to the adjusted amounts.)

 

Based on Company records and other information, Ford believes that all SEC filing requirements applicable to its directors and executive officers were complied with for 2009 and prior years.

 

 

⁽¹⁾Standard Compensation Arrangements

 

Fees.  On July 13, 2006, the Board of Directors voluntarily reduced Board fees payable to non-employee directors by half resulting in the following fee structure:

 

Annual Board membership fee		$	100,000
Annual Committee chair fee		$	2,500
Annual Presiding Director fee		$	5,000

 

For 2009, the Board voluntarily agreed to forgo the cash portion of the annual fees. Consequently, $60,000 (60% of the Annual Board membership fee) was credited to the directors’ accounts under the Deferred Compensation Plan for Non-Employee Directors (see below). Directors did not receive any other cash payments relative to board fees during 2009.

 

Deferred Compensation Plan.  Under this plan, 60% of a director’s annual Board membership fee must be deferred in common stock units. Directors also can choose to have the payment of all or some of the remainder of their fees deferred in the form of cash and/or common stock units. Each common stock unit is equal in value to a share of common stock and is ultimately paid in cash. These common stock units generate Dividend Equivalents in the form of additional common stock units (if dividends are paid on common stock). These units are credited to the directors’ accounts on the date common stock cash dividends are paid. Any fees deferred in cash are held in the general funds of the Company. Interest on fees deferred in cash is credited semi-annually to the directors’ accounts at the then-current U.S. Treasury Bill rate plus 0.75%. In general, deferred amounts are not paid until after the director retires from the Board. The amounts are then paid, at the director’s option, either in a lump sum or in annual installments over a period of up to ten years. In light of the requirement that 60% of annual director fees are deferred into common stock units, and that directors do not realize the cash value of such units until after they leave the Board, there is no minimum share ownership requirement for members of the Board.

 

Insurance.  Ford provides non-employee directors with $200,000 of life insurance. Effective December 31, 2008, the Board amended this plan so that life insurance coverage ends for all currently retired directors and directors who

retire in the future, except for those currently retired directors who had previously elected a reduction in life insurance and the $15,000 annuity discussed below, in which case only the annuity would continue. A director who retired from the Board after age 70 or, after age 55 with Board approval, and who had served for at least five years, may have elected to have the life insurance reduced to $100,000 and receive $15,000 a year for life.

 

Evaluation Vehicle Program.  We provide non-employee directors with the use of up to two Company vehicles free of charge. Directors are expected to provide evaluations of the vehicles to the Company.

 

⁽²⁾The amount shown for Edsel B. Ford II reflects the FASB ASC Topic 718 grant date fair value resulting from grants of restricted shares of common stock awarded under the 2008 Plan pursuant to a January 1999 consulting agreement between the Company and Mr. Ford. Under the agreement, the consulting fee is $125,000 per calendar quarter, payable in restricted shares of common stock. The restrictions on the shares lapse one year from the date of grant and are subject to the conditions of the 2008 Plan. Mr. Ford is available for consultation, representation, and other duties under the agreement. Additionally, the Company provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days’ notice.

 

⁽³⁾The following table summarizes the amounts shown in column (d).

 

All Other Compensation in 2009

 

 

⁽ⁱ⁾The amount shown for Dr. Neal reflects fees paid as a member of the board of managers of Ford Global Technologies, LLC, a wholly-owned entity that manages the Company’s intellectual property. As a non-employee director of such board, Dr. Neal receives the customary fees paid to non-employee directors. Currently, the fees are: Annual Fee: $10,000, Attendance Fee: $1,000 per meeting. Dr. Neal attended both meetings of the board of managers of Ford Global Technologies, LLC, during 2009.

 

⁽ⁱⁱ⁾All amounts shown in this column reflect the cost of evaluation vehicles provided to Directors (see footnote (1) above) and the actual cost incurred for holiday gifts. We calculate the aggregate incremental costs of providing the evaluation vehicles by estimating the lease fee of a comparable vehicle under our Management Lease Program. The lease fee under that program takes into account the cost of using the vehicle, maintenance, license, title and registration fees, and insurance. For Mr. Thornton, the cost of evaluation vehicles was $29,732.

2010 Director Compensation

 

Ford has made significant progress on its “ONE Ford Plan” during 2009 and we have announced that we plan to be profitable in 2010 on a pre-tax basis (excluding special items) for North America, our total Automotive sector and for the total Company, with positive Automotive operating-related cash flow, based on our 2010 planning assumptions.

 

In light of this significant progress, and following an analysis of director compensation being paid by peer group companies, including the payment of director compensation at General Motors following its bankruptcy, the Board of Directors of Ford has determined that it is appropriate that compensation to be paid to non-employee directors of the Company return to 2006 levels. Accordingly, effective as of January 1, 2010, the Board of Directors has agreed that the following compensation will be paid to non-employee directors of the Company:

 

 

The Board of Directors also considered that restoring compensation to competitive levels will permit the Company to attract new directors in an environment where it is increasingly difficult to attract qualified directors.

 

Moreover, the Board of Directors continues to believe that it is appropriate that a significant portion of non-employee director compensation be tied to shareholders’ interests and, therefore, has required that 60% ($120,000) of a director’s annual Board membership fee be deferred in common stock units under the Deferred Compensation Plan for Non-Employee Directors. All other aspects of Director compensation remain unchanged.

 

Since January 1993, Ford has had a consulting agreement with William Clay Ford. Under this agreement, Mr. Ford is available for consultation, representation, and other duties. For these services, Ford pays him $100,000 per year and provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days’ notice.

 

In February 2002, Ford entered into a Stadium Naming and License Agreement with The Detroit Lions, Inc., pursuant to which we acquired for $50 million, paid by us in 2002, the naming rights to a new domed stadium located in downtown Detroit at which the Lions began playing their home games during the 2002 National Football League season. We named the stadium “Ford Field.” The term of the naming rights agreement is 25 years, which commenced with the 2002 National Football League season. Benefits to Ford under the naming rights agreement include exclusive exterior entrance signage and predominant interior promotional signage. In June 2005, the naming rights agreement was amended to provide for expanded Ford exposure on and around the exterior of the stadium, including the rooftop, in exchange for approximately $6.65 million to be paid in varying installments over the next ten years, of which $564,933 was paid during 2009. Beginning in 2005, the Company also agreed to provide to the Lions, at no cost, eight new model year Ford, Lincoln or Mercury brand vehicles manufactured by Ford in North America for use by the management and staff of Ford Field and the Lions and to replace such vehicles in each second successive year, for the remainder of the naming rights agreement. The cost incurred during 2009 for providing the vehicles for 2009 through 2011 was $244,696. William Clay Ford is the majority owner of the Lions. In addition, William Clay Ford, Jr., is one of five minority owners and is a director and officer of the Lions.

 

Paul Alandt, Lynn F. Alandt’s husband, owns a Ford-franchised dealership and a Lincoln-Mercury-franchised dealership. In 2009, the dealerships paid Ford about $79.6 million for products and services in the ordinary course of business. In turn, Ford paid the dealerships about $17.0 million for services in the ordinary course of business. Also in 2009, Ford Motor Credit Company LLC, a wholly-owned entity of Ford, provided about $115 million of financing to the dealerships and paid $497,950 to them in the ordinary course of business. The dealerships paid Ford Credit about $123.4 million in the ordinary course of business. Additionally, in 2009 Ford Credit purchased retail installment sales contracts and Red Carpet Leases from the dealerships in amounts of about $18.5 million and $31.4 million, respectively.

 

Mr. Alandt also owns a Volvo franchised dealership. Volvo Cars is a wholly-owned entity of Ford. During 2009 the dealership paid Volvo Cars about $7.4 million for products and services in the ordinary course of business. In turn, Volvo Cars paid the dealership about $2.0 million for services in the ordinary course of business. Also in 2009, Ford Credit provided about $10.3 million of financing to the dealership and paid $11,798 to it in the ordinary course of business. The dealership paid Ford Credit about $10.6 million in the ordinary course of business. Additionally, in 2009 Ford Credit purchased retail installment sales contracts and retail leases from the dealership in amounts of $370,000 and about $559,000, respectively.

 

Edsel B. Ford II owns Pentastar Aviation, LLC, an aircraft charter, management, maintenance, and catering company. During 2009, the Company paid Pentastar, or its affiliates, $579,720 for services provided to the Company in the ordinary course of business.

 

In March 2001, Marketing Associates, LLC, an entity in which Edsel B. Ford II has a majority interest, acquired all of the assets of the Marketing Associates Division of Lason Systems, Inc. Before the acquisition, the Marketing Associates Division of Lason Systems, Inc. provided various marketing and related services to the Company and this continued following the acquisition. In 2009, the Company paid Marketing Associates, LLC approximately $23.7 million for marketing and related services provided in the ordinary course of business.

 

Pursuant to SEC filings, the Company was notified that as of December 31, 2008, Black Rock, Inc., 40 East 52nd Street, New York, New York 10022, through certain of its affiliates, owned 5.19% of our common stock. During 2009, the Company paid Black Rock approximately $1.1 million in the ordinary course of business.

 

Pursuant to SEC filings, the Company was notified that as of December 31, 2008, Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts 02109, owned approximately 5.33% of the Company’s common stock. During 2009, the Company paid Wellington Management Company approximately $3.8 million in the ordinary course of business.

 

2009 saw historic changes and challenges in the domestic automotive industry, as well as the global economy. We took decisive actions to address these challenges and opportunities. As noted in our 2009 Compensation Discussion and Analysis, we are acutely aware that economic conditions have had, and continue to have, a significant adverse impact on our shareholders, customers, suppliers, dealers, employees, and other stakeholders. These conditions include plunging consumer confidence, a severe downturn in auto sales, a significant decrease in home values, and high unemployment. In response to these developments, the Company and the Compensation Committee took the following compensation actions, among others, in order to reduce Company costs and conserve cash:

 

 

These actions, combined with other actions taken to conserve cash and reduce costs in our business, contributed to $5.8 billion in improved cost performance (excluding special items) during 2009, reduced our cash-burn rate by $19.2 billion from 2008 to 2009, and contributed to our 2009 full year net income of $2.7 billion.

 

Given the adverse economic environment, the Committee’s goals were to provide executives with longer-term incentives to achieve our business priorities while reducing costs and conserving cash. As detailed below, the Committee decided to emphasize equity-based compensation for the Named Executives, the majority of which were performance-based equity grants. This approach:

 

 

As discussed in more detail below, our 2009 performance against targets met many of our objectives for the year. This resulted in the Named Executives receiving more than 90% of their target equity incentives grants. Given the challenging economic environment, we believe this performance to be outstanding, and we are gratified that stakeholders have shown renewed confidence in our future.

 

How We Determine Compensation

 

The following discussion of our compensation philosophy, strategy, and guiding principles provides you with the framework within which compensation programs are developed at Ford. The discussion of the Company’s compensation objectives and business strategy provides you with background of those areas that were determined to be important in moving the Company forward in its goal of executing our ONE Ford Plan.

 

Our Compensation Committee adopted the following Philosophy Statement with respect to all salaried employees:

 

“Compensation and benefits programs are an important part of the Company’s employment relationship, which also includes challenging and rewarding work, growth and career development opportunities, and being part of a leading company with a diverse workforce and great products. Ford is a global company with consistent compensation and benefits practices that are affordable to the business.

 

Pay for performance is fundamental to our compensation philosophy. We reward individuals for performance and contributions to business success. Our compensation and benefits package in total will be competitive with leading companies in each country.”

 

In addition, the Committee has approved the following Strategy Statement:

 

“Compensation will be used to attract, retain, and motivate employees and to reward the achievement of business results through the delivery of competitive pay and incentive programs. Benefits provide employees with income security and protection from catastrophic loss. The Company will develop benefit programs that meet these objectives while minimizing its long-term liabilities.”

The following Guiding Principles ensure our Philosophy and Strategy statements are applied consistently across the business for our salaried employees. They work together — no one principle is more important than any other and management judgment is used to balance them in changing business conditions.

 

 

The Philosophy and Strategy statements and Guiding Principles are reviewed by the Committee on a regular basis. In 2006, the Committee amended the Strategy Statement to include retention of employees as an objective to emphasize the importance of this goal as we execute our turnaround plan. Attraction and retention of talented executives has proven to be even more challenging as conditions in the economy and our industry have worsened. There were no material changes to the Philosophy and Strategy statements and Guiding Principles in 2009.

 

As noted above, one of the primary objectives of our compensation program is to drive executive behavior to accomplish key strategic goals. Our President and Chief Executive Officer, Alan Mulally, further developed the Company’s strategic priorities under the strategy of ONE Ford. ONE Ford provides a single definition of not only what we need to accomplish but how we need to deliver those accomplishments to achieve success globally. ONE Ford aligns our efforts toward a common definition of success, which includes One Team executing One Plan to deliver One Goal.

 

One Team means people working together as a lean, global enterprise for automotive leadership.

 

One Plan means to:

 

1. Aggressively restructure our business to operate profitably at current demand and changing model mix.

 

2. Accelerate the development of new products our customers want and value.

 

3. Finance our plan and improve our balance sheet.

 

4. Work together effectively as one team.

 

One Goal means an exciting, viable Ford delivering profitable growth for all.

 

The Compensation Committee, in consultation with the Executive Chairman, the President and Chief Executive Officer, and the Group Vice President — Human Resources and Corporate Services, determined that emphasizing certain metrics in performance-based incentive plans would best promote our ONE Ford objectives. Given these priorities, the Committee decided to emphasize global and business unit profitability, total Automotive operating-related cash flow and cost performance metrics in our incentive plans for 2009. These metrics support the goals of aggressively restructuring our business to operate profitably, as well as financing our plan and improving our balance sheet. Additionally, the Committee emphasized quality and market share metrics in our incentive programs. These metrics support our goals of accelerating the development and introduction of new products our customers want and value. Furthermore, the performance metric to reduce global platforms for Mr. Ford’s and Mr. Mulally’s 2009 Incentive Grants (see “Equity-Based Compensation — A. 2009 Incentive Grants” on pp. 41-42) supports the objectives of accelerating the development of new products our customers want and value, as well as restructuring our business to operate profitably at current demand and changing model mix. All of these objectives require effective teamwork.

 

As discussed in greater detail below, performance in these critical areas drove the compensation decisions related to Performance Units for Named Executives for 2009. For more detail on these metrics and how they were used in our incentive programs, refer to “Equity-Based Compensation — A. 2009 Incentive Grants, B. Senior Executive Retention Program” and “C. Annual Performance Unit and Stock Option Grants” on pp. 40-47. This compensation structure is consistent with our compensation Philosophy, Strategy, and Guiding Principles of performance orientation, flexibility, competitive positioning, affordability, and reinforcing desired behaviors.

 

 

In December 2009, the Committee reviewed a report on Ford’s compensation programs for executives. The Company utilized the Towers Perrin Executive Compensation Database as the data source for the Company’s analysis of executive compensation. The compensation data was collected during the second quarter of 2009 and, therefore, included bonuses paid in early 2009 for 2008 performance, as well as equity grants for 2009. The report discussed how our executive compensation program compared with those of peer companies on base salary, bonus, long-term incentives, and total direct compensation.

 

In September 2009, we reviewed the companies included in our executive compensation survey in order to ensure appropriate comparisons. Although we have performed peer group analysis in the past, this year’s review held

additional significance due to: (i) the impact of the global economic downturn on many peer group companies; (ii) on-going public and governmental scrutiny of executive compensation; and (iii) additional regulatory requirements associated with proxy disclosures. Although stability of the peer group has been a high priority for several years and has provided useful year-over-year data comparison, the realities of today’s marketplace and prior inclusion of certain financial services firms required a re-evaluation of the peer group companies.

 

In consultation with the Committee’s independent consultant, the following criteria were used in the selection of the recommended peer group companies:

 

 

The above criteria ensure that the chosen executive compensation peer group will be representative of Ford’s market for talent. Based on these criteria, for the 2009 survey we removed AT&T, Altria Group, BP, Citigroup, Coca-Cola and Merck and added Lockheed Martin, General Dynamics, Valero, United Technologies, PepsiCo, Pfizer and Honeywell.

 

The compensation of executives of General Motors and Chrysler has been regulated due to those companies’ participation in TARP. We continue to believe, however, it is appropriate to include them in our comparator survey group because they are our closest domestic competitors. Our non-U.S. based competitors, such as Nissan, Toyota, and Honda, do not participate in the Towers Perrin survey process. In addition to General Motors and Chrysler, our peer group also included 21 leading companies in other industries:

 

 

While the Committee uses the survey as a reference point, it is not, and was not in 2009, the sole determining factor in executive compensation decisions. The survey group data is used primarily to ensure that our executive compensation program as a whole is competitive when the Company achieves targeted performance levels. We generally seek to provide total compensation opportunities, which include salary, annual bonus and long-term incentives, at or around the survey group’s median total compensation. We do not establish rigid targets for total compensation, or any individual element of compensation, relative to the survey group. Rather, consistent with our compensation Guiding Principles discussed above, we incorporate flexibility into our compensation programs and in the executive assessment process to respond to, and adjust for, changes in the business/economic environment and individual accomplishments, performance and circumstances. This flexibility was evident in 2009 when we canceled the Incentive Bonus Plan for 2009, as well as annual merit increases to salary, and instead emphasized performance-based equity compensation.

 

Although we discuss how the total direct compensation of our Named Executives compares to that of the survey group, Mr. Ford did not have an exact comparable position within the survey group and, consequently, his compensation was excluded from our analysis. The 2009 survey results indicated that the total direct compensation for our other Named Executives as a group was at the median, except for Mr. Mulally whose compensation was above the median. In general, 2009 cash compensation for the Named Executives was significantly below the median of the survey group, and equity-based compensation was slightly above the median on average, except for

Mr. Mulally, whose equity-based compensation was significantly above the median (see “Equity-Based Compensation” on pp. 40-41 for an analysis of how equity compensation affected the compensation of the Named Executives). The Committee’s emphasis on performance-based equity compensation reinforces the Committee’s pay for performance compensation philosophy (see “How We Determine Compensation — A. Compensation Philosophy, Strategy, and Guiding Principles” on pp. 33-34).

 

An analysis of how each element of compensation listed below compared to the survey data for 2009, as well as how the factors described above, including the competitive survey data review, affected Named Executive compensation decisions during 2009, is included in the discussion of each element.

 

D. Internal Pay Equity and Equity-Value Accumulation Analyses

 

Each year, the Committee reviews all components of compensation, both recent historical and prospective, of our executive officers, including the Named Executives. This review includes data on salary, annual bonuses, and equity-based awards, as well as qualitative data on perquisites, and is prepared by the Company’s Human Resources department. The Committee also takes into account relative pay considerations within the officer group and data covering individual performance. The Committee considered internal pay equity in deciding that those executives who participated in the Senior Executive Retention Program would not also participate in the 2009 Incentive Grants (see “Equity-Based Compensation — A. 2009 Incentive Grants” and “B. Senior Executive Retention Program” on pp. 41-42).

 

The Committee also considers analyses of the potential value of outstanding equity grants. For instance, the Committee reviewed the value of equity-based awards at certain price levels of Ford stock. The analysis included the following:

 

 

In light of our stock price and our desire to conserve cash, the Committee believes our equity-based compensation programs are appropriate to attract, motivate and retain executives.

 

E. Management Recommendations

 

The Committee considers recommendations from William Clay Ford, Jr., Mr. Mulally, and the Group Vice President — Human Resources and Corporate Services, in developing compensation plans and evaluating performance of other executive officers. The Committee’s consultant also provides advice and analyses on the structure and level of executive compensation (see Compensation Committee Operations on pp. 23-24). As noted in “How We Determine Compensation — B. ONE Ford” above, Mr. Mulally established the ONE Ford corporate priorities and, subsequently, our incentive plan metrics were developed in consultation with our Human Resources and Finance departments to support these priorities. In addition, these metrics and related targets were developed from our 2009 business plan. Final decisions on any major element of compensation, however, as well as total compensation for each executive officer, are made by the Compensation Committee.

 

Named Executive Officers

 

The Named Executives are:

 

 

 

^*As previously described, since 2005 Mr. Ford has foregone all compensation (including salary, bonus or other awards) until such time as the Compensation Committee determines that the Company’s global Automotive sector has achieved full-year profitability, excluding special items. It was further agreed that the compensation Mr. Ford would have received beginning in 2008 and future years, but for the agreement to continue to forego new compensation, will be earned and paid when the Committee determines that the Company’s global Automotive sector has achieved full-year profitability, excluding special items. In order to determine the compensation Mr. Ford could earn if the Company returns to full-year global Automotive profitability, excluding special items, the Committee approved a compensation plan for him for the years 2008 and 2009, including salary, bonus, and equity awards. As discussed under “Equity-Based Compensation” on pp. 40-47, Mr. Ford was granted Performance Units that will be earned and paid based on Company performance against metrics, as well as when the Company achieves full-year global Automotive profitability, excluding special items. In 2009, Mr. Ford was also granted stock options that will vest upon the later of the normal three-year vesting schedule and the Company achieving full-year global Automotive profitability, excluding special items. According to FASB ASC Topic 718, these Performance Units and stock options have grant date values (see columns (e) and (f) of Summary Compensation Table on p. 53). Consequently, Mr. Ford is included as a Named Executive pursuant to the SEC proxy rules even though he did not, and will not, receive salary, bonus, or equity awards until such time as the Committee determines the Company’s global Automotive sector has achieved full-year profitability, excluding special items.

 

Elements of Compensation

 

The table below lists the elements of our total compensation program and why we provide these elements:

 

Each compensation element is supported by the Philosophy, Strategy and Guiding Principles discussed in the “How We Determine Compensation” on pp. 33-34.

 

To achieve our objectives and to support our business strategy, compensation paid to our executives is structured to ensure that there is an appropriate balance among the various forms of compensation. The charts below show the various balances we achieved (with and without the 2009 Incentive Grants) compared to the balances achieved by the survey group:

 

 

As the charts indicate, cash compensation makes up a higher percentage of our executives’ compensation than that of the comparator group’s median when excluding the 2009 Incentive Grants (see “Equity-Based Compensation — A. 2009 Incentive Grants” on pp. 41-42). Furthermore, without the 2009 Incentive Grants, equity-based compensation makes up a lower percentage of our executives’ compensation than that of the comparator group. When including the 2009 Incentive Grants, the balance among the forms of compensation is approximately equal to the comparator group.

 

The Committee attempts to strike appropriate balances by analyzing the competitive market for executive talent, our business results and forecasts, and our key strategic goals for the year. As noted in the “Executive Summary” on p. 32, in order to conserve cash, the Committee emphasized performance-based equity compensation in 2009 to keep us on track on our restructuring plan. Given the persistent adverse economic conditions that occurred during 2009, we accelerated our turnaround plans. As a result of these efforts, we were able to announce that, based on our assumptions, we now expect our North American Automotive Operations to be profitable in 2010 and to be solidly profitable in 2011.

Annual Compensation

 

Annual compensation for our executives includes salary and incentive bonus, if earned, paid in cash.

 

 

When considering increases to base salaries, the Compensation Committee takes into account the following factors:

 

 

The Compensation Committee reviews salaries of the Named Executives annually and at the time of a promotion or other major change in responsibilities. As part of our objective to control costs, there were no increases to salaries (annual merit or otherwise) for any of the Named Executives in 2009.

 

Throughout 2009, the salaries for the Named Executives were above the median of the survey group. We believe that paying base salaries at the high end of the competitive survey is appropriate to retain executives throughout the business cycle because cash compensation and/or total compensation may be much lower than competitive levels while we restructure (see “How We Determine Compensation — C. Competitive Survey” on pp. 35-37). The relative salary level is also explained by the fact that Ford is generally larger and more complex than many of the companies in the survey group, with world-wide operations, a capital intensive business involving complex products with long product development timelines.

 

B. Incentive Bonuses

 

In the first quarter of 2009, in response to adverse economic conditions and in order to conserve cash and reduce expense, management recommended and the Committee decided that the 2009 Incentive Bonus Plan would be cancelled and therefore no payout would be made in March 2010 under the Incentive Bonus Plan for the 2009 performance period. Although performance against the metrics would have resulted in a significant payout, the Committee determined that the business need to conserve cash and reduce expense outweighed other considerations. This resulted in the total cash compensation of the Named Executives being significantly below the median of the comparator group. Based on performance to metrics for the 2009 performance year, we saved approximately $300 million by canceling the company-wide 2009 Incentive Bonus Plan.

 

The metrics, weightings, and performance targets for the 2009 Incentive Bonus Plan, if it had not been cancelled, would have been identical to those used for the 2009 Performance Unit program (see “Equity-Based Compensation — C. Annual Performance Unit and Stock Option Grants” on pp. 42-47). Since the decision to cancel the Incentive Bonus Plan for the 2009 performance period was made in the first quarter of 2009, no threshold, target, and maximum payouts were applicable for the Named Executives (see the Grants of Plan-Based Awards in 2009 Table and footnote 1 on p. 57).

 

Equity-Based Compensation

 

Our equity-based incentive awards are tied to our performance and the future value of our common stock. These awards are intended to focus executive behavior on our longer-term interests, because today’s business decisions affect Ford over a number of years. For 2009, our equity-based compensation consisted of new grants of Performance Units, stock options, and incentive grants to certain Named Executives, as explained in more detail below.

 

As discussed above, the competitive survey indicates that equity-based compensation for the Named Executives is approximately at the median of the comparator group on average when including the 2009 Incentive Grants (see

Equity-Based Compensation — A. 2009 Incentive Grants). For Mr. Mulally, the survey showed that his total equity-based compensation was significantly above the median of the survey group. This positioning reinforces our desire to, in general, pay at or near the median of equity compensation compared to the survey group as well as demonstrates flexibility in our compensation practices to reward superior performance and to respond to changing business and economic conditions.

 

As noted under “Equity-Based Compensation — D. Timing of Awards” on p. 47, the Committee determined 2009 equity awards at a meeting on February 25, 2009. At that time, the economy and the automotive industry were in the midst of a severe economic crisis. Speculation was increasing that our two main domestic competitors were preparing for bankruptcy, and it was unclear how that would affect Ford. As noted in the “Executive Summary” on p. 32, the Company needed to conserve cash and yet provide executives with a strong retention incentive to accelerate our ONE Ford Plan. The Committee decided to emphasize equity-based compensation in order accomplish these goals.

 

In granting stock awards, the Committee determines a dollar value of equity awards for each recipient. For officers, this dollar value is translated into a number of stock options, Performance Units, and time-based Restricted Stock Units based on the fair market value of Ford common stock on the date of grant. Non-officer recipients are granted stock options and/or time-based Restricted Stock Units depending on their leadership level. Because of the significant decrease in Ford’s stock price in late 2008 and early 2009, it became evident that there would not be enough shares available under the 2008 Plan to provide recipients with the full value of the planned equity awards. Under our 2008 Plan, the number of shares of common stock available for stock awards in any year is equal to 2% of the total number of issued shares of common stock as of December 31 of the prior year (the “2% Limit”). The 2% Limit may be increased up to 3% in any year, with a corresponding reduction in the number of shares available in later years. The Committee elected to increase the shares available for equity awards during 2009 to 3% of the number of issued shares as of December 31, 2008 in order to accommodate the planned awards, for the reasons noted above.

 

Even after increasing the 2% Limit to 3%, however, there were still not enough shares available under the 2008 Plan to provide recipients with the full value of the annual equity compensation awards and the 2009 Incentive Grants. Consequently, the annual Performance Unit and stock option grants were reduced by 24% and the planned 2009 Incentive Grants were reduced by varying amounts. The equity-based awards for Messrs. Mulally and Ford were not similarly reduced. The Committee made this decision for several reasons, including:

 

 

A. 2009 Incentive Grants

 

As noted in the “Executive Summary” on p. 32, we took several compensation actions to reduce costs and conserve cash during 2009 in response to economic and industry conditions, including emphasizing equity compensation. In addition to the annual grants of Performance Units and stock options discussed below, the Committee granted incentive equity awards in March 2009 to certain executives, including Messrs. Mulally, Ford and Fleming (see Grants of Plan-based Awards in 2009 Table on p. 57). In structuring the grants, the Committee gave due consideration to the reduction of cash compensation with the cancellation of merit increases to salary and the Incentive Bonus Plan for 2009. Messrs. Booth and Fields did not participate in the 2009 Incentive Grants because of

their participation in the Senior Executive Retention Program (see “Equity-Based Compensation — B. Senior Executive Retention Program” on p. 42).

 

Mr. Fleming received a time-based Restricted Stock Unit grant that has a two year restriction period. Messrs. Mulally and Ford received grants of Performance Units that have a two year performance period. The performance metric is an acceleration of the ONE Ford Plan to restructure our business as measured by a reduction in global Ford brand platforms in 2009 and 2010 from 25 platforms to 23 platforms. At the conclusion of the two-year performance period, the Committee will assess performance against this metric and will grant Final Awards, if any, in unrestricted common stock. As noted, Mr. Ford will receive the Final Award, if earned, only at such time as the Committee determines that the Company has achieved full-year global Automotive profitability, excluding special items.

 

B. Senior Executive Retention Program

 

In response to Mr. Mulally’s strategic priority of working together effectively as one team working toward one goal, the Committee decided to settle an equity incentive program initiated for certain executives in March 2006 and replace it with a new program emphasizing teamwork and the accomplishment of strategic goals. The consideration for settling the program was a cash payment made to participants based on actual and expected achievement of certain goals during the 2006-2008 performance period. Messrs. Booth and Fields received such payouts for 2006 performance.

 

To continue to provide a significant retention element and incentive to work together effectively as one team to accomplish key initiatives, the Committee decided to grant to certain senior executives, including Messrs. Booth and Fields, additional stock options as well as Performance Units in March 2007. The award opportunity for each participant was valued at eight times base salary and reinforces the importance of accomplishing our key strategic goals. In addition, the Committee believes an opportunity of this size serves as a strong retention incentive for key executives that have been identified as critical in the drive to accomplish our ONE Ford objectives.

 

We reduced the award opportunity for Messrs. Booth and Fields by the amount of their cash payout for the settled program referred to above. In 2007, the value of the net amount of the award opportunity for these executives was awarded 50% in stock options and 50% in Performance Units, consistent with the mix of the annual equity grant. See footnote 2 of the Grants of Plan-Based Awards in 2009 Table on pp. 57-58 for a description of the terms and conditions of the Performance Unit portion of this award opportunity.

 

For the performance against the 2009 target goals, refer to the “2009 Performance Unit Performance Results” Table on p. 46. The extent to which Restricted Stock Units were earned and paid out for each business unit is indicated in the far right hand column of the above referenced table.

 

C. Annual Performance Unit and Stock Option Grants

 

As was done in 2008, in 2009, the Committee continued the annual equity-based incentive program for the Named Executives by granting two types of equity-based compensation: stock options and Performance Units (see Grants of Plan-Based Awards in 2009 Table and related footnotes on pp. 57-58). The Committee awarded 50% of the value of each executive’s annual equity award in stock options and 50% in Performance Units.

 

In general, the total value of these grants in 2009 was determined based on the following considerations:

 

 

The stock options vest over three years, have a ten-year term, and function as our longest-term incentive. The Committee believes this focuses executive behavior and decision making on our long-term interests and aligns the interests of our executives with those of our shareholders. The Performance Units are awarded based on a one-year performance period, but are paid out in service-based Restricted Stock Units, which vest over a two-year period, providing an additional retention incentive. In granting the Performance Units, the Committee chose a one-year performance period in order to focus executive behavior on achieving key short-term business objectives. The two-year restriction period, however, adds an intermediate element that serves to retain executives and focus their behavior beyond the initial one-year performance period. In addition, because executive decisions regarding such matters as product development, marketing, sales, and the like, can affect our performance over several years, the Committee believes it is important to structure equity-based awards so that executives will focus on the long-term consequences of their decisions. This also further aligns executive interests with your interests as shareholders.

 

The target awards for 2009 Performance Unit grants for the Named Executives are shown in column (h) of the Grants of Plan-Based Awards Table in 2009 on p. 57. These amounts represent the maximum award opportunity. Payouts could range from 0% to 100% of the target award depending on performance. The Committee has discretion to decrease, but not increase, an award for Named Executives.

 

In 2009, for Named Executives whose primary responsibilities involved a particular business unit, the Committee set a formula that was based on metrics that took into account Company and relevant business unit performance as follows:

 

 

The Committee determined that this structure best took into account Company as well as individual performance for those Named Executives responsible for specific business units.

 

Those Named Executives whose duties are of a global nature were placed in the “Corporate” business unit. For these executives, the performance metrics used for 2009 were the following:

 

 

The Committee chose these metrics because they supported our key 2009 objectives identified as top priorities for the year (see “How We Determine Compensation — B. ONE Ford” on p. 35). The formula has a sliding scale, based on various levels of achievement for each metric. If certain performance levels are not met for all metrics, the payout would be zero.

 

^*We define total Automotive operating-related cash flow as automotive pre-tax profits (excluding special items as detailed in Ford’s Annual Report on Form 10-K for the year ended December 31, 2009) adjusted for the following:

 

 

The following are excluded in the total Automotive operating-related cash flow:

 

 

The Named Executives who participated in the 2009 Performance Unit program and their respective business unit are as follows:

 

Named Executive		Business Unit
Alan Mulally		Corporate
L. W. K. Booth		Corporate
William Clay Ford, Jr.		Corporate
Mark Fields		The Americas
John Fleming		Ford of Europe (50%) — Volvo (50%)

For the business units in which Named Executives participated, the following table shows the performance metric, weighting, and the target for each metric.

 

2009 Performance Unit Metrics, Weightings, and Targets

 

 

The table below shows the performance results for each metric for each business unit and the total performance results against the metrics for 2009. The Committee reviewed Ford’s performance for 2009 against the goals. Based on this performance, the Committee determined the percentage of each of the six performance goals achieved and the percent of the target award earned for each business unit in which a Named Executive participated (see column (h) of Grants of Plan-Based Awards in 2009 Table and footnote 2 on pp. 57-58).

 

2009 Performance Unit Performance Results
(% of Target Achieved)

 

 

*The Performance Results column for the Quality metric shows the combined percent achieved for the Things-Gone-Wrong target and Warranty Spending target, weighted equally as shown in the 2009 Performance Unit Metrics, Weightings, and Targets Table on p. 45. Although the performance results were less than 100%, our quality improved year-over-year and, in general, indicates industry-leading quality levels.

 

In its discretion, the Committee determined not to reduce payouts in recognition of the following: (i) the Named Executives made substantial progress in accelerating our ONE Ford Plan; (ii) Final Awards of Restricted Stock Units do not have an adverse impact on our cash flow in the current period; (iii) the two-year restriction period of the Restricted Stock Units serves as a retention tool; (iv) the two-year restriction period focuses executive behavior on our longer-term interests; and (v) Final Awards of Restricted Stock Units align executive interests with yours.

D. Timing of Awards

 

Annual grants of equity awards are typically determined at a February Compensation Committee meeting. At that time, data for previous performance periods are available to determine the amount of the Final Awards. The Committee also decides the effective date of the annual equity-based grants of options and Performance Units. Due to administrative complexity relating to valuation and notification, the Committee approved the annual 2010 equity-based Final Awards and grants on February 25, 2010, and the Board approved an effective date of March 3, 2010. A similar practice was also followed for the 2009 annual equity-based Final Awards and grants. The release of earnings information for the prior fiscal year is sufficiently in advance of the annual grant date for the public to be aware of the information.

 

The Committee does not time equity grant dates to affect the value of compensation either positively or negatively. Executive officers did not play a role in the selection of the grant dates. Special grants, whether approved by the Compensation Committee for officers or the Long-Term Incentive Compensation Award Committee for non-officers, are effective either on a specified future date (e.g., a date that coincides with a promotion or hiring date, or quarterly grant date), or the date of approval. In the case of an approval by written consent, the grant date cannot be earlier than the date when the Committee member approvals have been obtained. See Corporate Governance — Compensation Committee Operations at pp. 23-24 for more information on the Long-Term Incentive Compensation Award Committee. For exercise prices of the 2009 option grants, see column (l) of the Grants of Plan-Based Awards in 2009 Table on p. 57. Under the 2008 Long-Term Incentive Plan, the terms of which were approved by you at the 2008 Annual Meeting, the exercise price of options will be the closing price on the date of grant.

 

Stock Ownership Goals

 

In 1994, the Compensation Committee created stock ownership goals for executives at or above the Vice President level to further align the interests of the executives with those of shareholders. The following table shows the officer level and respective ownership goal.

 

		Ownership Goal
Officer Level		(% of salary)
Vice Presidents and Senior Vice Presidents			100	%
Group Vice Presidents			200	%
Executive Vice Presidents			300	%
Executive Chairman and President & CEO			500	%

 

Executives have five years from taking their position to achieve their goal.

 

We review progress toward achievement of the ownership goals periodically. All forms of stock ownership — including directly and indirectly owned shares of common stock, final awards of stock equivalents or restricted stock units, and units that are based on common stock — count toward the goal. As of March 3, 2010, all of the Named Executives comply with the stock ownership goals.

 

Compensation Programs for 2010

 

The following changes to our compensation and benefits program were effective January 1, 2010:

 

We believe that the programs mentioned above are reasonable and appropriate given the progress of our ONE Ford Plan. As noted in the “Executive Summary” on p. 32, in recent years our employees experienced significant reductions in compensation and benefits. In light of those reductions and our progress during 2009, we believe the business can now better afford these programs, which will assist in incentivizing and retaining our employees.

 

In “Equity Compensation” on pp. 40-41, we explained that due to the 2008 Plan’s limit on shares available for grant and Ford’s stock price on the date of grant, we were not able to provide recipients with the full-value of the equity compensation awards for the 2009 annual equity grants and the 2009 Incentive Grants. In light of our 2009 performance and the rise in our stock price, the shares available under the 2008 Plan are now sufficient to allow us to award supplementary equity compensation grants in March 2010. For current employees, recipients received equity grants that approximated the value by which the recipients’ 2009 annual equity grants and/or 2009 Incentive Grants were reduced. Messrs. Mulally and Ford did not receive any supplementary grants. In addition to the value of their 2010 annual equity awards, Messrs. Booth, Fields, and Fleming received stock options and Performance Units equal in value to the reduction in value of their 2009 annual stock award grants. Likewise, Mr. Fleming received additional time-based Restricted Stock Units in March 2010 equal in value to the reduction in value of his 2009 Incentive Grant.

 

In order to further implement our ONE Ford Plan objective of working together effectively as one team, the Committee decided that all officers will be assigned to the Corporate business unit for purposes of the performance metrics under the 2010 annual Performance Unit grants. Additionally, the Committee decided to decrease the global PBT metric weighting from 55% to 45% and increase the global Automotive operating-related cash flow metric from 20% to 30% for the 2010 annual Performance Unit program. This change reflects the continued importance and emphasis on managing our cash.

 

Retirement Plans

 

In general, we believe that the retirement plans described below serve several worthwhile business purposes, including retaining top leadership talent. In addition, they provide income security to long serving executives, and provide flexibility to us in transferring executives among our operations. We believe these programs to be reasonable and appropriate in light of competitive practices and our executives’ total compensation program. For additional information, see the Pension Benefits in 2009 Table on p. 63 and the Nonqualified Deferred Compensation in 2009 Table on p. 65.

 

A. Pre-2004 Plans

 

Our General Retirement Plan (“GRP”) provides a tax-qualified benefit for each year of non-contributory participation by employees in the United States hired before January 1, 2004, and added benefits for those who make contributions. We also have two other non-qualified retirement plans for certain employees: the Supplemental Executive Retirement Plan (“SERP”) that provides a supplemental monthly benefit calculated on a percentage of Final Average Pay (0.2%-0.9% depending on executive position) and service, and the Benefit Equalization Plan (“GRP-BEP”). Under the GRP-BEP, eligible employees receive benefits substantially equal to those they could have received under the GRP but were not able to because of Internal Revenue Code limitations. Messrs. Booth, Ford, Fields, and Fleming are eligible for benefits under the GRP, SERP, and GRP-BEP.

 

Certain eligible executives who separate from employment after age 55 (age 52 if retiring under our Select Retirement Plan (“SRP”)) and prior to age 65 may be eligible for monthly benefits under our Executive Separation Allowance Plan (“ESAP”) that provides a percentage of salary, based on age and service, at time of separation until age 65. The SRP is a voluntary retirement program offered from time-to-time for select U.S. management employees. In 2006 the Committee requested that its consultant, Semler Brossy Consulting Group, LLC, and the Company jointly conduct a review of the SRP as a severance vehicle. The review compared present values of the SRP benefit with traditional severance packages, examined potential changes, and considered benefits to the Company and to executives. The

Committee reviewed the report and concluded that the SRP should remain in its current form to facilitate the reduction in work force then being undertaken by the Company and to provide flexibility to accommodate any future reductions.

 

Benefits under SERP, SRP, ESAP, and GRP-BEP are not funded. In addition, in accordance with Code Section 409A, benefits that accrued or vested on or after January 1, 2005 under these plans may not be paid to certain key executives until at least six months following their separation from employment.

 

B. Post-January 1, 2004 Plan

 

Consistent with our Strategy Statement (see “Executive Summary — A. Compensation Philosophy, Strategy, and Guiding Principles” on pp. 33-34) to develop benefit programs that provide employees with income security and protection from catastrophic loss while minimizing our long-term liabilities, Ford adopted a tax qualified retirement plan, the Ford Retirement Plan (“FRP”), for salaried employees hired or rehired on or after January 1, 2004 in the U.S. The FRP was adopted in order to provide us with more predictable retirement benefit costs and reduced financial statement volatility. These goals are achieved through a stable contribution schedule and the transfer of financial and demographic risks from us to plan participants while still providing employees with the opportunity for adequate income in retirement. Employees who participate in this plan, including Mr. Mulally, are not eligible to participate in the GRP (with respect to future service) GRP-BEP, SERP, or ESAP.

 

Perquisites and Other Benefits

 

We provided certain perquisites and other benefits to senior management in 2009, the most significant of which are summarized below. The Committee periodically reviews our policies on perquisites and other benefits. The cost of these perquisites and other benefits, as applicable are included in column (i) of the Summary Compensation Table on p. 53.

 

Personal Travel:  As part of our efforts to reduce costs and conserve cash, we decided to close our Air Transportation operation in 2008. Company policy does not allow Messrs. Mulally or Ford to fly commercially due to security concerns. Consequently, the Company pays the charter costs of their use of private aircraft for business and personal travel. The families of Messrs. Mulally and Ford are allowed to accompany them on trips when they travel on private aircraft. In addition, the Company will pay the cost of coach-class commercial aircraft flights for Mr. Mulally’s family when their travel is at his request.

 

Requiring Messrs. Mulally and Ford to use private aircraft for all travel provides several benefits to Ford. First, the policy is intended to ensure the personal safety of our President and CEO and our Executive Chairman, both of whom maintain significant public roles for Ford. Second, use of private aircraft ensures their availability and maximizes the time available for Ford business.

 

For retention purposes, the Company continues to pay the costs, including first class commercial airfare, for personal travel for Mr. Fields to and from his home in Florida.

 

Evaluation Vehicle Program:  We maintain a program that provides our officers with the use of two Company vehicles free of charge. This program requires officers to provide written evaluations on a variety of our vehicles, providing important feedback on the design and quality of our products.

 

Other Services:  For certain executive officers, including the Named Executives, we provide a home security evaluation and security system. We also provide an allowance to senior managers for financial counseling services and estate planning. We pay for approximately 75% of the cost of this service up to $7,500. The safety and security (personal and financial) of our executives is critically important. We believe the benefits of providing these programs outweigh the relatively minor costs associated with them.

Tax Reimbursement:  During 2009, the Committee reviewed the Company’s policy regarding tax gross-ups for executive perquisites. There are only two perquisites for which tax gross-ups are available: (i) personal travel and (ii) temporary living/relocation expenses. The total amount spent on tax gross-ups for 2008 for Named Executives was approximately $460,000, and this amount decreased to $135,883 for 2009 due to less relocation expense. The Committee decided not to change our tax gross-up policy for 2009. The rationale for maintaining the policy was that the majority of the relatively low total amount spent on gross-ups is related to the use of private aircraft for personal travel, which the Company requires for Messrs. Mulally and Ford. We believe that the relatively small cost of providing this benefit is far outweighed by the value of the benefit in helping to attract and retain executive talent in a difficult business environment.

 

Alan Mulally

 

Effective September 1, 2006, we entered into an agreement with Mr. Mulally relating to his hiring as President and Chief Executive Officer. That agreement contained a “change in control” provision that provides that if we terminate Mr. Mulally’s employment for reasons other than for cause during the first five years of his employment or if there is a change in control of the Company during the first five years of his employment and he terminates his employment for good reason, he will receive certain payments and benefits (see Potential Payments Upon Termination or Change in Control — Alan Mulally on pp. 66-71). If Mr. Mulally leaves us pursuant to these arrangements, he may not work for a competitor for five years after the date of his termination. Mr. Mulally will not be entitled to any severance payment if he is terminated for cause.

 

The Committee believes these termination provisions are reasonable. The sunset provision of five years is an appropriate length of time to compensate Mr. Mulally to leave his prior position at Boeing and assume a leadership role with a company in the midst of a turnaround. The non-compete clause also protects the Company from competitive harm should Mr. Mulally separate from Ford under these conditions. In addition, under a change in control scenario, Mr. Mulally’s employment either must be terminated or he must terminate his employment for “good reason” in order to receive the termination benefits.

 

Mr. Mulally also was granted the option to live in temporary housing near the Company’s headquarters for the first two years of employment at Company expense. In September 2008, the Committee decided to continue this arrangement indefinitely. The Committee believes the arrangement is beneficial to Mr. Mulally and the Company by allowing him to continue to focus on our ONE Ford Plan. The cost of this benefit is included in column (i) of the Summary Compensation Table on p. 53. He is eligible for relocation assistance pursuant to our relocation program if he chooses to relocate his household.

 

William Clay Ford, Jr.

 

In “Named Executive Officers” on pp. 37-38, we explained the compensation arrangement with Mr. Ford that led to his being a Named Executive this year. Please refer to footnote 1 to the Summary Compensation Table on p. 53 for an explanation of the treatment of each element of Mr. Ford’s compensation. The Committee believes this arrangement is fair and reasonable in light of Mr. Ford’s leadership of the Company, initially as CEO during the early phases of our turnaround plan. He has continued to provide valuable service in his role as Executive Chairman and Chairman of the Board in partnering with the President and CEO in setting Ford’s strategy, and to provide leadership on Company-wide issues of sustainability and stakeholder relationships. The 2008 change to Mr. Ford’s compensation arrangement accomplishes the following: (i) provides Mr. Ford reasonable compensation for his efforts, if the Company returns to full-year global Automotive profitability, excluding special items; (ii) preserves Mr. Ford’s

pledge not to receive new compensation until the Company achieves full-year global Automotive profitability, excluding special items; and (iii) strongly links Mr. Ford’s compensation with shareholder interests.

 

Tax and Other Considerations

 

A. Internal Revenue Code § 162(m)

 

Code Section 162(m) generally disallows Federal tax deductions for compensation in excess of $1 million paid to the Chief Executive Officer and the next three highest paid officers (other than the Chief Financial Officer) whose compensation is required to be reported in the Summary Compensation Table of the proxy statement (“Covered Executives”). Certain performance-based compensation is not subject to this deduction limitation. In our case, this exemption applies to certain awards under the Incentive Bonus Plan, the 1998 Plan, and the 2008 Plan. Specifically, 2009 awards of stock options and Final Awards related to Performance Units were not subject to the deduction limit. However, the amount of the Final Award for Mr. Mulally that exceeded the shareholder approved limit of 2.5 million Restricted Stock Units and therefore are subject to the deduction limit.

 

In contrast to the 2009 stock option awards and the Final Awards granted under Article 4 of the 2008 Plan, service-based Restricted Stock Units awarded to Covered Executives in prior years are subject to the deduction limit. Additionally, we cannot deduct that portion of any Covered Executive’s salary that is in excess of $1 million (see Summary Compensation Table on p. 53), or the cost of any perquisites provided to a Covered Executive whose salary exceeds $1 million.

 

Generally, we strive to maximize the tax deductibility of our compensation arrangements. In the highly competitive market for talent, however, we believe the Committee needs flexibility in designing compensation that will attract and retain talented executives and provide special incentives to promote various corporate objectives. Furthermore, as noted in “Equity-Based Compensation” on pp. 40-41, the Committee responded to the adverse economic environment by emphasizing performance-based equity compensation in order to help achieve the 2009 objectives of our ONE Ford Plan. The Committee, therefore, retains discretion to award compensation that is not fully tax deductible.

 

B. Internal Revenue Code § 409A

 

Code Section 409A governs the timing for income inclusion of amounts deferred under nonqualified deferred compensation plans. If certain requirements are not met, employees are subject to additional income taxes. Our supplemental retirement plans, severance arrangements, and other nonqualified deferred compensation plans presently meet these requirements. As a result, employees generally will be taxed when deferred compensation is received. We will be entitled to a tax deduction at that time.

 

C. Internal Revenue Code § 280G

 

Code Section 280G disallows a company’s tax deduction for “excess parachute payments.” Additionally, Code Section 4999 imposes a 20% excise tax on any person who receives excess parachute payments. Presently, only Mr. Mulally is entitled to payments upon termination of his employment following a change in control of the Company which may qualify as “excess parachute payments.” Accordingly, our tax deduction for any such excess parachute payments would be disallowed under Code Section 280G. Not all of the payments to which Mr. Mulally may become entitled upon a change in control would be excess parachute payments. None of the other Named Executives has a “change-in-control” provision.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based on this review and discussion, the Committee recommended to the Board of Directors that the CD&A be included in this Proxy Statement and incorporated by reference into our annual report on Form 10-K.

 

Compensation Committee

 

Richard A. Manoogian (Chair)
Anthony F. Earley, Jr.
Ellen R. Marram
John L. Thornton

 

The Compensation Committee is comprised of Anthony F. Earley, Jr., Richard A. Manoogian, Ellen R. Marram, and John L. Thornton, none of whom is an employee or a current or former officer of the Company.

 

The table below shows the before-tax compensation for Alan Mulally, who served as President and CEO during 2009, L. W. K. Booth, who served as Executive Vice President and Chief Financial Officer during 2009, and the three most highly compensated executive officers at the end of 2009.

 

SUMMARY COMPENSATION TABLE